HHH Prof. Assaad on labor issues in the MENA region

How the Middle East is sowing seeds of a second Arab spring 03/05/2018 - 02:15Financial Times

“Friends were shot beside, in front and behind me,” remembers Mohammed Soghayer of the tumultuous days in 2011 when Tunisian security forces battled to crush mass protests that eventually ended the brutal rule of Zine el-Abidine Ben Ali. The events in Tunis proved a catalyst for the Arab spring as long-oppressed populations rose up against autocratic, corrupt regimes.

Yet seven years on, Mr Soghayer, a graduate who struggles to make ends meet on the $6-$8 he earns a day working in a café, has — along with thousands of others — been back on the streets. The trigger for the anti-government protests in January were cuts to petrol subsidies and increased taxes on cars, internet use and phone calls. But for many, like Mr Soghayer, the government’s austerity moves were just the latest example of the ruling elite hurting the poor.

“The youth just have no way of living . . . All we want is to reach the status of slaves who were at least guaranteed food, clothes and shelter,” the 36-year-old says. “It is not normal for a young man my age to be unable to afford marriage or a home.”

His anger reflects a common theme across a region burdened with the world’s highest youth unemployment rate — about 30 per cent of 15-24 year-olds are jobless — as well as one of the fastest population growth rates and where cash-strapped governments are looking to overhaul expensive subsidy systems. Iran was rocked by the biggest anti-regime protests in almost a decade in December, fuelled in large part by austerity measures and resentment over corruption. Algeria and Jordan have also been hit by smaller protests this year over food price rises and public spending cuts.

The bouts of unrest reflect the disillusionment felt by many across the Middle East as they blame their leaders for ignoring their demands for more equitable systems that deliver jobs, social freedoms and prosperity. Such pent-up anger was the catalyst for the 2011 uprisings in the region, igniting conflicts in Syria, Libya and Yemen, and providing fertile recruiting grounds for extremist groups, such as Isis.

The jihadi group is now in retreat after losing its strongholds in Iraq and Syria. But experts warn that the region remains gripped by a simmering crisis that poses an even graver threat to its long-term stability: the failure of governments to fix broken systems that for decades combined oppression with state largesse to maintain stability.

“Unless you come up with a new discourse politically and economically then a new version of Isis is going to emerge,” says Marwan Muasher, a former Jordanian foreign minister and vice-president of the Carnegie Endowment for International Peace. “It [the fractures in society] is the biggest problem, and unfortunately very few leaders are paying attention to it.

“If they don’t, we might face another Arab spring, this time more radical and more violent,” he adds. “No one can predict when it will happen, nobody predicted when the Arab spring happened. [But] the status quo is not sustainable.”

Few Arab countries were left untouched by the 2011 uprisings. Some, like Morocco, implemented a degree of reform. Most reverted to tried-and-tested means to contain restive populations: handouts and crackdowns on dissent. But the Middle East’s traditional social contract, state pay-offs funded by petrodollars set against limited political freedom, is fraying.

After a prolonged period of low oil prices, instability and economic stagnation, governments grappling with budget deficits and a deepening dependence on foreign debt, are finally reining in state benefits. Middle East governments spent $74bn on fuel handouts in 2016, accounting for a quarter of the world’s energy subsidies, according to the International Monetary Fund. Many are also cutting inefficient civil services that have acted as social safety nets but eat up about a third of government expenditure.

Experts say the reforms are long overdue, but they are happening in a volatile environment defined by a rising sense of injustice among a youthful, urbanised and better informed population, with many Arabs believing their lives have worsened in the years since 2011.

“It was better before the revolution because money went further, but now everything is expensive. I haven’t had work for two years,” says Mourad Zaabouti. The 34-year-old Tunisian lives with his mother and survives off his late father’s pension. “I had hope in the revolution, but nothing has changed.”

He actually lives in one of the region’s brighter spots. While other nations have become ever more repressive, Tunisia is the only Arab state that can lay claim to a democratic transition in the wake of the 2011 uprisings. But the country’s political gains have not been matched by economic success, as it remains blighted by 25 per cent youth unemployment and yawning disparities between better-off coastal areas and the impoverished interior. In 2016, Tunis agreed to a $2.8bn loan package from the IMF to ease the stress on its overstretched state coffers. But it meant pushing ahead with painful reforms, including the austerity measures that caused January’s protests.

Egypt took a similar path, securing a $12bn IMF loan agreement under which Cairo slashed fuel subsidies and devalued the pound. The moves were welcomed by investors and businesses squeezed by a dollar shortage, but heaped more pain on Egyptians as food prices rocketed, with inflation soaring above 30 per cent. When the government sought to tweak its bread subsidy system, it was forced into a U-turn after protests erupted.

Large-scale unrest in the Arab world’s most populous state has been averted partly because the subsidy cuts have taken place as the regime tightens its autocratic grip. Since President Abdel Fattah al-Sisi seized power in a 2013 coup, thousands of people have been detained and 450 websites blocked in a crackdown that Human Rights Watch describes as “untamed repression of all forms of dissent”. Mr Sisi is assured of securing a second term in presidential elections this month.

In Saudi Arabia Crown Prince Mohammed bin Salman is taking a multi-pronged approach to overhauling an oil-addicted economy and a cradle-to-grave welfare system. The 32-year-old heir-apparent has wooed young Saudis with promises of creating a more tolerant, open society, including lifting the ban on women driving. He has also sought to narrow a fiscal deficit by cutting public sector benefits, increasing fuel prices by as much as 127 per cent and introducing value added tax.

But even as dissent has been quashed in the kingdom, with princes and journalists arrested, Prince Mohammed is treading a fine line. Riyadh reinstated benefits to civil servants and military personnel after just six months. Within days of introducing the 5 per cent VAT and hiking fuel prices this year, Riyadh responded to complaints by granting state employees an additional monthly payment of SR1,000 ($267) for a year.

Yet if Prince Mohammed is to meet his targets, the next generation will have to lower their expectations over salaries and perks as they compete for private sector jobs. Two-thirds of Saudis are employed by the state and the public sector wage bill accounts for more than 10 per cent of gross domestic product, with government salaries on average 150 per cent higher than the private sector, according to the IMF.

“We are entering new territory,” says Khaled al-Dekhayel, former professor of political sociology at King Saud University in Riyadh. “If the economic squeeze keeps getting worse, then the possibilities are really wide open. Is the government going to absorb [take account of] the reaction of the people? That’s possible. If not, then you could have a very difficult political time here.”

Ragui Assaad, an Egyptian professor of planning and public affairs at the University of Minnesota, says the region’s woes are compounded by weak private sectors that are unable to absorb new job entrants and rising expectations among job seekers as education attainment rates have shot up.

“There was an assumption that the private sector would take over the role of producing good jobs once the state pulled back. That simply hasn’t happened,” he says. “Foreign investment has not materialised and domestic investment has gone into very safe areas that don’t produce good jobs, for example, real estate.”

In the 1970s and early 1980s, an Egyptian entering the labour market with a secondary education or higher had a 70 per cent chance of securing a public sector job. By the 2000s, those prospects had slipped to 25 per cent, while the labour market entrant now only has a 15 per cent chance of getting a formal private sector job, Mr Assaad says.

There are more jobs in construction — often casual labour — than in mining, utilities and manufacturing combined, he adds. Egypt’s population has swelled from 69m in 2000 to almost 96m and the number of university graduates has risen to about 500,000 a year.

“When you educate young people . . . you raise expectations and when you’re unable to meet those expectations you get a lot of anger and frustration,” Mr Assaad says. “Most of the unemployment in the region is [due to] people [not] getting their first job, it’s not people losing their jobs. Eventually they will get a job in the informal economy after having waited in the queue for several years.”

Repression can only muzzle such frustrations for so long, he adds. “The risk is you have more unrest or more repression. It’s the middle class, or those aspiring to be middle class, who are most disaffected because that is who the social contract was with.”

The IMF is aware of the risks. Christine Lagarde in January warned Arab countries to accelerate job creation: “The public dissatisfaction, bubbling up in several countries, is a reminder that even more urgent action is needed,” the fund’s managing director said, adding that 27m people will enter the Arab workforce in the next five years.

The struggle for governments, however, is to lure investment into sectors that generate jobs such as manufacturing. To ease the strains, the IMF is advocating more targeted “social protection programmes” such as cash payments to the poorer segments of society rather than broader subsidy systems.

But Mr Muasher, the former Jordanian minister, insists economic reforms will only work if accompanied by political change. “You cannot have these autocratic systems, whether in Saudi Arabia, Egypt or Iran or anywhere else, and hope that your economic process is going to sail smoothly,” he says. “Nobody is talking about complete freedoms and total democracy overnight, but as you ask people for more economic sacrifices, you must allow some political voices.”

Mr Soghayer is convinced that maintaining the status quo will ultimately lead to unrest. “The degree of public anger is constantly rising . . . popular rage will reach a dangerous level.”